ABSTRACT
The
price of a company stock is an indication of the performance of company where
stock is properly priced, investors can invest in the most profitable companies
based on the stock prices of the companies.
It is
in line with the foregoing that the researcher has decided to appraise the
efficiency of stock pricing on the Nigerian Stock Exchange
In
doing thus, the researcher adopted the historical and descriptive methods of
research. Data was sourced through the use of interviews, questionnaires and
journals. The chi-square techniques of data analysis was employed in
conjunction with percentage and tables.
Based
on the analysis carried out, it was found that stock on the Nigerian Stock
Exchange were efficiently priced.
The
findings reveal that the Nigerian Stock Exchange is faced with a number of problems
such as, the retention attitude of Nigerian investors and also the problem
of an underdeveloped financial system
and finally the oligopoly structure of the NSE does not augur well for
competition and development.
Recommendations
made include the need for government to pursue its current privatization
process with more vigor, and that there should be a significant lowering of
corporate tax rates on publicly quoted companies, which increase public
confidence in the Stock Market, to mention but a few.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1
General Overview
1.2
Statement of the Problems
1.3
Scope of the Study
1.4
Significance of the Study
1.5
Objectives of the Study
1.6
Hypothesis
1.7
Research Questions
1.8
Definition of Terms
1.9
Plan of Study
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
2.2 History
of the Nigerian Capital Market
2.3 Structure of the Nigeria Capital Market
2.3 Regulatory
Environment of the Nigerian Capital Market
2.4 Securities
and Exchange Commission
2.5 Functions
of the Nigerian Capital Market
2.6 Listing
on the Nigerian Stock Exchange
2.8 Summary
References
CHAPTER THREE
RESEARCH DESIGN / METHODOLOGY
3.1
Introduction
3.2
Research Methods
3.3
Methods of Data Collection
3.4
Techniques of Data Analysis
3.5 Research Design
3.6 Justification
of the Methods and Techniques Used
3.7 Summary
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.1 Introduction
4.2 Organization
and Operations of the Nigeria Stock Exchange
4.3 Methods
of Pricing Securities in the Nigerian Stock Exchange.
4.4 Pricing
Efficiency of The Nigerian Stock Exchange
4.4.1 Analysis
Based on Questionnaires
4.4.2 Analysis
Based on Profit Ability of Selected Companies
4.4.3 Share
Prices and Profit After Tax of Selected Quoted Companies
4.4.4 Test
of Hypothesis
4.5 Problems
of Nigerian Stock Exchange
4.6 Summary
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
Findings
5.2 Limitation
of the Study
5.3 Conclusion
5.4 Recommendations
Bibliography
CHAPTER ONE
INTRODUCTION
1.10
GENERAL
OVERVIEW
For any
economy to remain afloat in it’s bid for survival in today’s globalization,
deregulation and liberalization of markets, it needs to have an efficient
financial system to direct the allocation of its resources capital markets and
institutions, of which the stock exchange is an integral part of have become of,
paramount importance in a dynamic economy as Nigeria.
The
capital market is a sub-set of financial system that provides the accelerated
growth of the economy. This it does by efficiently channeling fund from
investors into productive sectors of the economy. It serves as an avenue for
government and companies to raise long-term funds to fiancé their activities.
The
capital market consists of a network of institutions and individuals comprised
of regulators and operators who,
together, facilitate the smooth operation of the market. In other words, the
capital market comprises, providers of funds (investors), users of funds
(companies and governments), intermediaries (stock brokers, issuing houses, registrars)
and regulators (SEC, the Nigerian Stock Exchange and Central Bank of
Nigeria).
The
Nigerian Capital Market is made up of basically two components the primary and
secondary market. The initial sale of securities from the issuing corporation or
government to the investor is done in the primary market. The issuers uses the
funds raised to expand production, build infrastructures and the like very few
investors can be persuaded to tie up their funds indefinitely. Therefore,
securities are usually negotiable,
enabling the initial buyers to re-offer the securities to any interested
party at any prices which is mutually satisfactory. It is, therefore, a
function of securities exchange to provide an arena where such mutually
satisfactory prices may be determined. It is in the regard that it becomes
important to analyze the stock pricing function of the Nigerian capital
market.
1.11
STATEMENT
OF THE PROBLEMS
As a
result of both institutional and individual investors staking out their hard
earned money in order to earn a reasonable return on securities acquired in companies, it would be necessary
to know whether the shares and securities acquired in companies quoted in the Nigerian Stock Exchange are property
priced. However, there is great need to critically consider the following
relevant problems as regards the research topic:
a.
Lack of information from listed companies
b.
Lack of knowledge of the operations and
functions of the stock exchange.
c.
Difficulty in obtaining quotation in the stock
exchange
d.
Lack of clear understanding of the pricing of
shares and securities in the Nigerian Stock Exchange
1.12
SCOPE
OF THE STUDY
As the
topic suggest, this study focuses on the pricing function of the Nigerian
Capital Market.
Therefore,
the study confines itself to history, operations and functions of the Nigerian
capital market in relation to stock pricing.
In so
doing, the Nigerian Stock Exchange (NSE) will be used as a case study. It would
cover the period between 1996 to 2000.
1.13
SIGNIFICANCE
OF THE STUDY
This
study would be significant to the following people and in the following ways:
i.
This study would be of great benefit to market
operators like the stockbrokers, issuing
houses and their likes, as it would bring out their short coming in the area of
pricing of securities.
ii.
It would also be valuable to public investor as
it would enlighten them on stocks to invest in.
iii.
The study would also be significant to students
of fiancé, accounting, economies and business administration, as it would
educate them on the pricing function of the Nigerian capital Market.
iv.
The study would assist policy makers in the
Nigerian Capital market in developing strategies that would improve pricing
efficiency and thereby improving the general efficiency as a result.
1.14
OBJECTIVES
OF THE STUDY
In the
light of the pervasive ignorance shrouding the operations of pricing in the
Nigerian capital Market, this study is set to achieve the following specific objectives:
a.
To appraise securities pricing in the Nigerian
Capital Market
b.
To evaluate the various methods used in price
determination of shares and securities.
c.
To inquire into the efficiency of the market
for securities.
d.
To determine the trend of share prices on the
Nigerian Stock Exchange (NSE)
e.
To inquire into the factors that solely
determine the prices of securities in the Nigerian Capital Market.
f.
To find solution to obstacles facing pricing of
securities on the Nigerian Stock
Exchange.
1.15
HYPOTHESIS
For
the purpose of this research work, it is desirable to test the hypothesis so as
to make valid conclusions to either accept or reject the assumptions on the
following basis.
Ho:
Securities in the Nigerian Capital Market are not efficiently priced.
Hi:
Securities in the Nigerian Capital Market are efficiently priced.
1.16
RESEARCH
QUESTIONS
This
research work will attempt to answer the following questions:
(i)
How fair are prices of securities in the
capital market?
(ii)
How relevant are the method of pricing
securities used in the Nigerian Capital market in relation to other methods
available?
(iii)
How fast does security prices response to
available information on companies performance and the state of the economy.
(iv)
To what extent do public investors place
reliance on prices of securities in this market.
(v)
What correlation exists between prices of securities and
companies levels of economic activities.
1.17
DEFINITION
OF TERMS
THE SECURITIES MARKET:
This
refers to the market where, the purchase and sale of securities takes place. It
has three dimension i.e the capital market, money market, and secondary market.
CAPITAL MARKET
This
is the market for long term capital i.e long term financing assets. It is a
market where long term financing assets are traded including preference and
common stock debentures and bonds.
PRIMARY MARKET:
This
refers to the new issues market when a firm issues new securities either bonds
or common stock, the securities are sold in primary market since they are new
issues. Once the securities have been
sold, any future sales occurs in the
secondary market. The primary market also exists in the money market.
SECONDARY MARKET
This
is the market which exist as a result of future sale of securities which had initially been traded
upon in the primary market.
RIGHT ISSUES
This
is the raising of more funds by quoted companies through special issues of
shares to existing shareholders of the issuing company. It is typified by the
on going privatization exercise.
1.18
PLAN
OF STUDY
This
project is organized into five chapters
Chapter one: which
is the introductory chapter present general overview information about stock
pricing in the Nigerian Capital Market, statement of the problem which the
study is set to address. The scope, significance and objectives of the study,
and also looked at the basic hypothesis of the study, both the Null (Ho)
and the Alternate (HI).
Furthermore
technical terms that will be used in the course of reporting the finding of
this research are also defined.
Chapter two:
reviews relevant existing literatures which focuses on the history, structure,
regulatory environment and functions of the Nigerian Capital Markets. The
securities and exchange Commission and the Nigerian Capital Market
operators.
Chapter three:
tagged research methodology, outlines the various methods used in data collection, the analysis,
techniques and justification of there
techniques.
Chapter four:
presents the data obtained during the research and their analysis, it also
provides answers to the research questions that were stated under the statement
of the problem.
Chapter five: takes
into cognizance the summary, conclusion and recommendations derived logically
from the study. Limitations of the study and areas of further research were
also noted.
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